Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange

Torben Andersen, Tim Bollerslev, Francis Diebold and Clara Vega

No 02-16, Working Papers from Duke University, Department of Economics

Abstract: Using a new dataset consisting of six years of real-time exchange rate quotations, macroeconomic expectations, and macroeconomic realizations (announcements), we characterize the conditional means of U.S. dollar spot exchange rates versus German Mark, British Pound, Japanese Yen, Swiss Franc, and the Euro. In particular, we find that announcement surprises (that is, divergences between expectations and realizations, or "news") produce conditional mean jumps; hence high-frequency exchange rate dynamics are linked to fundamentals. The details of the linkage are intriguing and include announcement timing and sign effects. The sign effect refers to the fact that the market reacts to news in an asymmetric fashion: bad news has greater impact than good news, which we relate to recent theoretical work on information processing and price discovery.

Date: 2002
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Related works:
Journal Article: Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange (2003)
Working Paper: Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange (2002)
Working Paper: Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange (2002)
Working Paper: Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange? (2002)
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